Exam 8: Sources of Short-Term Financing

Analog Computers needs to borrow $475,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $475,000 spendable cash?

The sale of asset-backed securities can sometimes enable the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

Kenneth's Arrows and Bows borrow $15,000 for one year at 8% annual interest. What is the effective rate of interest if the loan is discounted?

Holland Construction Co. has an outstanding 180-day bank loan of $475,000 at an annual interest rate of 7.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.

Firms using commercial paper are generally required to maintain commercial bank lines of credit equal to the amount of the paper outstanding.

Finance paper usually carries a higher rate of interest than direct paper.

The largest source of short-term funds for most companies is suppliers (trade credit).

Firms can almost always increase the amount of time they take to pay for purchases without incurring problems.

Commercial paper that is sold without going through a broker or dealer is known as

Monthly installment loans usually increase the effective interest rate of borrowing by approximately 2 times the stated interest rate.

The cost of not taking a 2/10, net 30 cash discount is usually less than the prime rate.

Which method of controlling pledged inventory provides the greatest degree of security to the lender?

Which of the following is NOT a characteristic of commercial paper?